CEO's Total Wealth Characteristics and Implications on Firm Risk

Timo Korkeamäki*, Eva Liljeblom, Daniel Pasternack

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

Abstract

We study the connections between firm risk and the CEO's personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO's tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.

Original languageEnglish
Pages (from-to)35-58
Number of pages24
JournalINTERNATIONAL REVIEW OF FINANCE
Volume18
Issue number1
DOIs
Publication statusPublished - 1 Mar 2018
MoE publication typeA1 Journal article-refereed

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